First Uranium to meet future production growth plans at its South African operations by installing power plants and a sulphuric acid plant
Mon Apr 21, 2:02 AM
ca.news.finance.yahoo.com
All amounts are in US dollars unless otherwise noted.
TORONTO and JOHANNESBURG, April 21 /CNW/ - First Uranium Corporation (TSX:FIU, JSE:FUM) (ISIN:CA33744R1029) ("First Uranium" or "the Company") today confirmed its decision, previously announced on February 13, 2008, to generate a portion of its future electrical power requirements at its underground Ezulwini Mine ("Ezulwini") and the Mine Waste Solutions tailings recovery project ("MWS") in South Africa. While these arrangements to generate additional power to supplement that supplied by South Africa's national power utility, Eskom, will increase the projected capital and operating costs of the Company's two operations, this investment in power is justified by securing supply of electrical power and it will have been more than offset by the increased realized price for gold and the decline in the value of the South African rand against the US dollar.
Taking into consideration the capital and operating costs of generating additional power, revised acid price assumptions and a revaluation of metal price and exchange rate assumptions (each of which is described in further detail in this news release), the revised net present value ("NPV" at an 8% discount rate) is expected to be $667 million for Ezulwini and $420 million for MWS and the internal rates of return ("IRR") for the projects are expected to be 336% for Ezulwini and 75% for MWS.
In a separate news release, also dated April 18, 2008, the Company announced that it will establish a separate business unit to build and operate an acid plant to supply sulphuric acid to Ezulwini and MWS.
RATIONALE FOR THE COMPANY TO GENERATE ITS OWN POWER
The Company conducted a study assessing the economic viability of First Uranium generating its own power at Ezulwini and MWS for the next five years, as a result of the significantly reduced supply of electrical power currently available in South Africa and Eskom's concerns about its ability to supply power to the country's mining industry in the short and medium term. On January 24, 2008, Eskom communicated to the mining industry that the utility could not guarantee power availability and asked the industry to operate at electrical power levels below historical load requirements until 2012 (the "Power Situation"). While Eskom has announced plans to increase the supply of power incrementally in the years leading up to 2012, Eskom also reports that full power availability cannot be guaranteed until then.
At both Ezulwini and MWS, based on the positive economic results of each study, the Company plans to initially lease diesel generators for a term of up to five years. In addition, the Company plans to purchase and install 30 megawatts ("MW") of electrical power generating capacity at a cost of approximately $20 million. The Company expects to power its generators using a combination of diesel fuel and heavy fuel oil for approximately five years and to recover approximately 50% of its investment by selling the power generators when they are no longer needed.
"First Uranium is determined to start up its uranium recovery plants at its Ezulwini Mine and MWS on schedule," said Gordon Miller, President and CEO of First Uranium. "We have adjusted our uses and sources of electrical power to enable us to fulfill our production commitments to our investors. We do not intend to let the Power Situation nor the ongoing increases in the cost of sulphur and sulphuric acid threaten our business or use them as an excuse to miss our project milestones. Given that we are mining uranium and gold at both projects we are confident that the project economics are robust enough, assuming our forecast metal prices, to allow us to overcome the electrical power shortages and rapidly increasing acid prices that are prevalent in South Africa."
IMPACT ASSESSMENT BY PROJECT
Based on the positive results of the studies of the impact of generating power and the impact of building and operating the acid plant, the Company, with the full support of its Board, will proceed with the full development of its two projects and acid plant as follows:
For the Ezulwini Mine:
- given the uncertainty of power supply, since January 24 2008, at a
third-party gold plant to toll-treat the Company's ore, the Company
reduced mine development and hoisting ore to surface during February
and March, 2008, and focused on shaft refurbishment until the
operation's gold plant commences commissioning at the end of April
2008, when mine development and hoisting ore are expected to resume
at planned rates
- the Company expects to recover any interim production shortfalls
arising from the reduction of mine development as the processing
plant has available milling capacity to accommodate additional
throughput for the next 12 months
- the first 50,000 tonne per month module of the gold plant remains on
schedule for commissioning commencing in April 2008 using Eskom power
(as available) augmented by existing installed diesel generator
capacity if necessary
- the first 50,000 tonne per month module of the uranium plant remains
on schedule for commissioning commencing in June 2008 using the
Company's new power generation capacity. Current mine production from
the gold section and uranium section will be stockpiled separately on
surface in the interim
- the Company does not expect any material adjustment to previously
reported production forecasts
- full operation of Ezulwini is expected to require a maximum demand of
56 MW of power, of which Eskom has amended its committed supply to
32 MW, requiring the Company to generate 24 MW, 10 MW more than its
existing generator capacity of 14 MW
- prior to the Power Situation, electrical power costs were expected to
represent about 9% of the operating costs. The impact of additional
operating costs for power generation are estimated to be an
additional $3.59 (a 12% overall increase) per pound for uranium and
an additional $35.50 (an 8% overall increase) per ounce for gold over
the five-year period of self power generation.
Expected costs to generate additional power over the life of the mine at
Ezulwini subsequent to the Power Situation and to purchase Eskom power at
higher rates are listed in the table below and are expected to result in
average annual operating costs, on a co-product basis, of $0.86 per pound for
uranium and $8.62 per ounce for gold.
Table 1: Operating Cost Impact of Electrical Power at the Ezulwini Mine
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Fiscal year Additional Additional Additional power
ending operating cost unit cost cost as a % of
March 31 ($ millions) ($ per tonne) operating costs
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2009 8.6 14.24 20%
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2010 18.3 12.51 21%
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2011 16.8 8.53 17%
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2012 8.80 4.00 11%
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2013 5.89 2.67 10%
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Life of mine 58.35 1.19 18%
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For MWS:
- the current MWS operation remains unaffected by the Power Situation
as it is drawing additional power from Buffelsfontein Gold Mines
Limited ("BGM")
- upgrading of the MWS gold plant to increase the design capacity to
633,000 tonnes per month was completed on schedule
- although announced on February 13 that a three-month delay was
expected to complete a feasibility study for the additional power
requirements, the Company now expects to start commissioning the
second gold plant module and the first two modules of the uranium
plant in December 2008
- the construction schedule for the third modules of its gold and
uranium plants will be completed by December 2009
- full operation of MWS is expected to require a maximum demand of
43 MW of power by February 2010, of which Eskom has committed to
supply 29 MW by this date, requiring the Company to generate 14 MW
- prior to the Power Situation, electrical power costs were expected to
represent about 9% of the operating costs. The impact of additional
operating costs for power generation are estimated to be an
additional $2.49 (a 10% overall increase) per pound for uranium and
an additional $44.70 (a 13% overall increase) per ounce for gold over
the five-year period of self power generation.
Expected costs to generate additional power over the life of the mine at
MWS subsequent to the Power Situation and to purchase Eskom power at higher
rates are listed in the table below and are expected to result in average
annual operating costs, on a co-product basis, of $1.04 per pound for uranium
and $17.00 per ounce for gold.
Table 2: Operating Cost Impact of Electrical Power at MWS
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Fiscal year Additional Additional Additional power
ending operating cost unit cost cost as a % of
March 31 ($ millions) ($ per tonne) operating costs
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2009 3.41 0.98 11%
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2010 18.58 1.06 23%
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2011 22.13 0.95 21%
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2012 6.28 0.27 8%
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2013 0.45 0.02 1%
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Life of mine 50.89 0.56 13%
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Technical reports for both projects are expected to be completed by
June 2, 2008.
ECONOMIC AND COMMODITY PRICE ASSUMPTIONS
To assess the financial impact of the costs of generating additional power
and revised cost of sulphuric acid, the following tables show the Company's
commodity price assumptions for May 2007 (the date of the previous technical
report for Ezulwini), November 2007 (the date of the previous technical report
for MWS and April 2008 (the most recent survey of assumptions). The November
2007 and April 2008 assumptions are based on an average nominal consensus
forecast from the investment research analysts at 13 North American-based
brokerage firms, adjusted downward by the US inflation rate for the period
covering the construction of the projects.
Table 3: NOVEMBER 2007 ECONOMIC AND COMMODITY PRICE ASSUMPTIONS
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Beyond
Unit Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2012
-------------------------------------------------------------------------
Gold price $/ounce 737 734 683 627 635
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Uranium price $/pound 104 104 91 78 45
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Currency
exchange
rate ZAR/$US 7.40 7.40 7.40 7.40 7.40
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Market
sulphuric
acid price
(incl.
transport) $/tonne 60 60 60 60 60
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Project
sulphuric
acid price
(MWS) $/tonne 60 60 60 60 60
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Project
sulphuric
acid price
(Ezulwini) $/tonne 60 60 60 60 60
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Table 4: APRIL 2008 ECONOMIC AND COMMODITY PRICE ASSUMPTIONS
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Beyond
Unit Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2012
-------------------------------------------------------------------------
Gold price ($/oz.) 890 907 874 797 711
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Uranium price ($/lb.) 96 92 79 75 50
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Currency
exchange
rate (ZAR/$US) 7.27 7.36 7.50 7.45 7.57
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Market
sulphuric
acid price
(incl.
transport) $/tonne 350 265 170 95 95
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Project
sulphuric
acid price
(MWS) $/tonne 266 266 34.2 34.2 34.2
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Project
sulphuric
acid price
(Ezulwini) $/tonne 565 565 47.5 47.5 47.5
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REVISED PROJECT ECONOMICS
The following tables summarize the impact of the power supply and acid
cost changes at Ezulwini and MWS. More details of the project economics from
the financial models upon which the information in Tables 5 and 6 are based,
will be posted to the Company's web site (www.firsturanium.com) in due course.
Table 5: REVISED PROJECT ECONOMICS FOR THE EZULWINI MINE
-------------------------------------------------------------------------
From May 2007 April 2008 April 2008
technical with May 2007 with April 2008
report assumptions assumptions
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Uranium price ($ per pound) 50 50 see April 2008
assumptions
-------------------------------------------------------------------------
Gold price ($ per ounce) 500 500 See April 2008
assumptions
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Electrical power required 56MW 56MW 56MW
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Eskom commitment 80MW 32MW 32MW
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Self-generated power - 24MW 24MW
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Life-of-mine average
co-product operating costs
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Operating cost per tonne
milled ($/tonne) 56.87 71.82 71.82
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Uranium cash cost ($/pound) 29 41 33
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Gold cash cost ($/ounce) 297 385 376
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Capital expenditures $271 million $220 million $220 million
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-------------------------------------------------------------------------
Average annual
life-of-mine production
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Uranium (pounds) 888,000 951,000 951,000
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Gold (ounces) 290,000 306,000 306,000
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Production milestones
-------------------------------------------------------------------------
Gold plant commissioning
commences April 2008 April 2008 April 2008
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1st 50,000 tpm mill April 2008 April 2008 April 2008
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Uranium plant commissioning
commences June 2008 June 2008 June 2008
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2nd 50,000 tpm mill Sep 2008 Sep 2008 Sep 2008
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3rd 50,000 tpm mill Jan 2009 Jan 2009 Jan 2009
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4th 50,000 tpm mill Jan 2009 Jan 2009 Jan 2009
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NPV(8) $332 million $191 million $667 million
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IRR 32% 34% 336%
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Notes:
1. The assumed exchange rate for South African rand for all dates in
the table above is as shown in the table above.
2. Co-product costs assume that operating cash costs are split in
proportion to the revenue earned from each product.
3. NPV is calculated using a nominal discount rate of 8%
Table 6: REVISED PROJECT ECONOMICS FOR MWS
-------------------------------------------------------------------------
From November April 2008 with April 2008 with
2007 technical November 2007 April 2008
report assumptions assumptions
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Uranium price see November see November see April 2008
($ per pound) 2007 assumptions 2007 assumptions assumptions
-------------------------------------------------------------------------
Gold price
($ per ounce) See November See November See April 2008
2007 assumptions 2007 assumptions assumptions
-------------------------------------------------------------------------
Electrical power
required 43 MW 43 MW 43 MW
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Eskom commitment 43 MW 29 MW 29 MW
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Self-generated power - 14 MW 14 MW
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-------------------------------------------------------------------------
Life-of-mine average
co-product operating costs
-------------------------------------------------------------------------
Gold operating cost per
tonne reclaimed ($/tonne) 1.93 2.16 2.12
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Uranium operating cost
per concentrate tonne
($/tonne) 8.09 10.00 9.82
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Uranium cash cost ($/pound) 24 22 22
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Gold cash cost ($/ounce) 264 353 347
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-------------------------------------------------------------------------
Capital expenditures $260 million $264 million $241 million
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average annual
life-of-mine production
-------------------------------------------------------------------------
Uranium (pounds) 1,339,000 1,317,000 1,317,000
-------------------------------------------------------------------------
Gold (ounces) 126,000 130,000 130,000
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Production milestones
-------------------------------------------------------------------------
1st module of gold plant June 2007 June 2007 June 2007
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2nd module of gold plant Nov. 2008 Dec. 2008 Dec. 2008
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3rd module of gold plant Nov. 2009 Dec. 2009 Dec. 2009
-------------------------------------------------------------------------
1st module of
uranium plant Nov. 2008 Dec. 2008 Dec. 2008
-------------------------------------------------------------------------
2nd module of
uranium plant Nov. 2008 Dec. 2008 Dec. 2008
-------------------------------------------------------------------------
3rd module of
uranium plant Nov. 2009 Dec. 2009 Dec. 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NPV(8) $505 million $133 million $419 million
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IRR 151% 22% 75%
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Notes:
1. This table differs from the November 2007 model in that the
Company's fiscal year 2008, which ended on March 31, 2008, has not
been considered in the above calculations.
2. The assumed exchange rate for South African rand for all dates in
the table above is as shown in the table above.
3. Co-product costs assume that operating cash costs are split in
proportion to the revenue earned from each product.
4. NPV is calculated using a real discount rate of 8%
5. The first gold plant module became operational with the
acquisition of the Chemwes gold plant in June 2007.
"With Eskom being unable to meet the power demands of the country, we knew that we had no choice but to generate our own power," said Mr. Miller. "The real task was to find a way to minimize the upfront capital costs of acquiring this additional power generating capacity. We were able to do that and also design power-savings solutions into the plant construction that would reduce the dependence on self-generated power. Fortunately, the rising price for the gold we are producing is expected to more than offset the additional costs of our own power generation. Rapidly increasing prices of sulphur have also had a very positive impact on the economic assessment of our large above ground source of sulphur which is contained in pyrite in the tailings dams at MWS."
Technical Disclosure
All technical disclosure in this news release relating to the Mine Waste Solutions tailings recovery project ("MWS" and formerly named the Buffelsfontein tailings recovery project) has been prepared in accordance with National Instrument 43-101 ("NI 43-101) by Daan van Heerden, B.Sc., M.Comm., Charles Muller, B.Sc, Pr.Sci.Nat, and Johan Odendaal, B.Sc., M.Sc., Pr.Sci.Nat all of Minxcon Pty Ltd. ("Minxcon"), Treavor Pearton, B.Sc Eng PhD, FGSA and Mike Valenta, Pr Eng, B.Sc., of Metallicon Process Consulting (Pty) Ltd. ("Metallicon') each of whom is a "qualified person" under NI 43-101 and is independent of First Uranium.
Historical technical disclosure in this new release relating to MWS is extracted from a technical report entitled "Technical Report - Pre-Feasibility of the Buffelsfontein Tailings Recovery Project, located in Stilfontein, North West Province, Republic of South Africa" submitted on November 1, 2007, and prepared by Mssrs. van Heerden, Muller, Odendaal, Pearton and Valenta. The disclosure contained in this news release relevant to their respective contributions has been reviewed and approved by Messrs. van Heerden, Muller, Odendaal, Pearton and Valenta.
All technical disclosure in this news release relating to the Ezulwini Mine has been prepared in accordance with NI 43-101 by R. Dennis Bergen, P.Eng and Wayne Valliant P.Geo of Scott Wilson Roscoe Postle Associates Inc. ("Scott Wilson RPA") each of whom is a "qualified person" under NI 43-101 and is independent of First Uranium.
Historical technical information is this news release relating to the Ezulwini Mine is extracted from a technical report entitled "Technical Report - Preliminary Assessment of the Ezulwini Project, Gauteng Province, Republic of South Africa" originally submitted on November 8, 2006, revised on December 5, 2006, January 31, 2007 and May 9, 2007 prepared in accordance with NI 43-101 by Messrs. Bergen and Valliant, who have also reviewed and approved the disclosure in this news release.
The economic analysis contained in this news release is contained in a the above technical reports and is based, in part, on inferred resources, and is preliminary in nature. Inferred resources are considered too geologically speculative to have mining and economic considerations applied to them and to be categorized as Mineral Reserves. There is no certainty that the reserves development, production and economic forecasts on which the preliminary assessment contained in the technical reports is based, will be realized.
Cautionary Language Regarding Forward-Looking Information
This news release contains certain forward-looking statements. Forward-looking statements include but are not limited to those with respect to the availability of electrical power, the planned addition of owner-operated power generation, price of uranium and gold, price of electrical power and sulphuric acid, the estimation of mineral resources and reserves, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, costs and timing of development of new deposits, success of exploration activities, permitting time lines, currency fluctuations, requirements for additional capital, availability of financing on acceptable terms, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage and the timing and possible outcome of pending litigation. In certain cases, forward-looking statements can be identified by the use of words such as "goal", "objective", "plans", "expects" or "does not expect", "is expected", "projected", "assumed", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", or "does not anticipate", or "believes" or variations of such words and phrases, or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of First Uranium to be materially different from any future results, performance or achievement expressed or implied by the forward-looking statements. Such risks and uncertainties include, among others, the actual results of current exploration activities, conclusions of economic evaluations, changes in project parameters as plans continue to be refined, availability of equipment, materials and fuel, possible variations in grade and ore densities or recovery rates, failure of plant, equipment or processes to operate as anticipated, accidents, labour disputes or other risks of the mining industry, delays in obtaining government approvals or financing or in completion of development or construction activities, risks relating to the integration of acquisitions, to international operations, to prices of uranium and gold, to price of electrical power and sulphuric acid. Although First Uranium has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. It is important to note, that: (i) unless otherwise indicated, forward-looking statements indicate the Company's expectations as of the date of this news release; (ii) actual results may differ materially from the Company's expectations if known and unknown risks or uncertainties affect its business, or if estimates or assumptions prove inaccurate; (iii) the Company cannot guarantee that any forward-looking statement will materialize and, accordingly, readers are cautioned not to place undue reliance on these forward-looking statements; and (iv) the Company disclaims any intention and assumes no obligation to update or revise any forward-looking statement even if new information becomes available, as a result of future events or for any other reason.
In making the forward-looking statements in this news release, First Uranium has made several material assumptions, including but not limited to, the assumption that: (i) consistent supply of sufficient power will be available to develop and operate the projects as planned; (ii) approvals to transfer or grant, as the case may be, mining rights will be obtained; (iii) metal prices, exchange rates and discount rates applied in the preliminary economic assessments are achieved; (iv) mineral resource estimates are accurate; (v) the technology used to develop and operate its two projects has, for the most part, been proven and will work effectively; (vi) that labour and materials will be sufficiently plentiful as to not impede the projects or add significantly to the estimated cash costs of operations; (vii) that Black Economic Empowerment ("BEE") investors will maintain their interest in the Company and their investment in the Company's common shares to a sufficient level to continue to support the Company's compliance with 2014 BEE requirements; and (viii) that the innovative work on stabilizing the main shaft at the Ezulwini Mine will be successful in maintaining a safe and uninterrupted working environment until 2024.
Conference Call
First Uranium will conduct a conference call with investors to discuss the information in this news release at 10:00 a.m. local Toronto time and 4:00 p.m. local Johannesburg time on Monday, April 21, 2007. The conference call will be available simultaneously to all interested investors and news media.
Callers may dial 1 800 319-4610 (Canada and the US) or 0800 200 648 (South Africa). Callers from other international locations may call +1 604 638-5340 (Canada) or +27 11 535 3600 (South Africa). The call will be webcast at services.choruscall.com and an archive will be available through the same link shortly after the live event for 90 days.
A replay of the conference call will be available for 30 days. To access the replay, callers may dial 1 800 319-6413 (Canada and the US). Callers from other international locations may access the replay by dialing +27 11 305 2030 (South Africa) or +1 604 638-9010 (Canada). Access to the replay will require the code 2128, followed by number sign.
About First Uranium Corporation
First Uranium Corporation (TSX:FIU, JSE:FUM) is focused on the development of its South African uranium and gold mines with the goal of becoming a significant producer through the re-opening and underground development of the Ezulwini Mine and the expansion of the Mine Waste Solutions tailings recovery facility. First Uranium also plans to grow production by pursuing value-enhancing acquisition and joint venture opportunities in South Africa and elsewhere.
First Uranium Corporation
1240-155 University Avenue, Toronto, ON Canada M5H 3B7
www.firsturanium.com
Contacts
Bob Tait
VP Investor Relations
at (416) 342-5639 (office)
(416) 558-3858 (mobile) or bob@firsturanium.ca |
